S&P Economist Predicts 5 Interest Rate Cuts in 2025 as US Economy Slows
Economy

Fed’s Gradual Rate Reduction Strategy: How Paul Gruenwald Forecasts Five Rate Cuts and Two Percentage Points in Interest Rates by 2025

In a recent report, S&P Global Ratings’ global chief economist Paul Gruenwald predicted that the US Federal Reserve (Fed) may cut rates up to five times in 2025 due to a slowing US economy. This forecast suggests that the Fed could potentially lower interest rates by 2 full percentage points as inflation cools.

According to Gruenwald, the US economy cannot sustain its current pace of growth indefinitely, and he anticipates that the Fed will embark on a gradual rate reduction strategy. The global chief economist expects three rate cuts in 2024 followed by up to five rate cuts in 2025, resulting in a total reduction of two full percentage points over the next 21 months.

Gruenwald believes that despite a current surge in productivity and investment, the economy is likely to slow down. As a result, inflation is expected to inch closer to the Fed’s 2% target, providing the central bank with justification for cutting rates more significantly. S&P Global anticipates a 2.5% GDP expansion by the end of 2024 but foresees a slowdown in growth in the latter half of the year.

Upside risks to this forecast include potential increases in unemployment leading to more aggressive rate cuts by the Fed. However, Gruenwald still expects the Fed to proceed with gradual rate reductions. In contrast, other Wall Street forecasters believe that interest rates may remain elevated for an extended period due to persistently high prices.

Some economists have warned that inflation could climb even higher this year, especially as recent AI-fueled stock market surges may be exacerbating financial conditions without assistance from the Fed.

In summary, Gruenwald predicts that if inflation continues to cool and economic growth slows down further, we can expect more monetary easing from the Federal Reserve in 2025 and potentially earlier than expected.

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